MRP SYSTEM

Material requierements management is a computerized inventory control and production planning system. It has the most stringent and complete control over the entire process. It starts with the demand for a product and then, using the bill of materials that show how the product is made, multiplies items for item down through the entire chain. This gives the number of each item needed to produce that number of product. Further, it not only tabuletes the number of items, but it also considers the time it takes to make each item in the cain. The final result is a schedule that shows the number of each item needed in the sequence and the time in which it must be produced.

PURPOSES,OBJECTIVES AND PHILOSOPHY OF MRP

The main
purposes
of a basic MRP system are;

To control inventory levels,
- Order the right part.
- Order in the right quantitiy.
- Order at the right time.
To assign operating priorities for items,
- Oreder with the right due date.
- Keep the due date valid.
- To plan capacityto load the production system,
  - Plan for a complete load.
  - Plan an accurate load.
  - Plan for an adequate time to view future load.

The theme
of MRP is "getting the right materials to the right place at the right time."

The objectives
of inventory management under an MRP system are;

To improve customer service.
To reduce inventory investment.
To improve plant operating efficiency.

The philosophy of MRP is that materials should be expedited when their lack would delay the overall production schedule falls behind and postpones their need.

BENEFITS OF MRP SYSTEM

Some of the most important benefits of MPR system are;

Increases sales.
Reduces sales price.
Reduces inventory.
Better customer service.
Better response to market demands.
Ability to change the master schedule.
Reduces setup and tear-down costs.
Reduces idle time.
Gives advance notice.
Tells when to de-expedite as well as expedite.
Delays or cancels oreders.
Changes order quantities.
Advances or delays order due dates.
Aids capacity planning.

MATERIAL REQUIREMENTS PLANNING STRUCTURE

MRP system works as follows;

Orders for products are used to create a master production schedule,which states the number of items to be produced during spesific time period.
A bill of materials file identifies the specific materials that are used to make each item and the correct quantities of each.
The invetory records file contains data such as the number of units on hand and on order.

These 3 sources become the data sources for the Materials Requirements program, which expands the production schedule into detailed order scheduling plan for the entire production sequence.We will now discuss these element in detail.

EXHIBIT 1 Material Requirements Planning System Structure

MRP Inputs

Master Production Schedule;

The master production schedule (MPS) specifies

which items or finished products a firm is to produce,
how many are needed,
when they are needed.

The master production schedule works within the constraints of the production plan but produces a more specific scedule by individual products.The time frame is more specific, too. An MPS is usually expressed in days or weeks and may extend over several months to cover the complete manufacture of the items contained in the MPS.The total length of time required to manufacture a product is called its cumulative lead time.

Exhibit 2 shows a sample MPS consisting of 4 end items.

EXHIBIT 2-Master Production Schedule (MPS)

P E R I O D SMPS Item12345678Item A78931408080808080Item B060060060060Item C501105720171000Item D100100100100100100100100

Several comments should be made concerning the quantities contained inthe MPS;
the quantities represent production, not demand

The quantities may consist of a combination of customer orders and demand forecasts
The quantities represent what needs to be produced, not what can be produced.

Product Structure File

Once the MPS set, the MRP system accesses the product structure file to determine which component items need to be scheduled. The product structure file contains a bill of material (BOM) for every item produced. The bill of material for a product lists the items that go into the product, includes a brief description of each item, and specifies when and in what quantity each item is needed in the assembly process.

When each item is needed can be best described in the form of a product structure diagram, as shown in Exhibit3 for a wheelbarrow.An assembled item sometimes called a "parent" and a component is called "child".The number in paranthesis beside each item is the quantitiy of the component to make one parent.

EXHIBIT 3-Product Structure Tree Showing BOM Levels.

A diagram can be converted to a computerized bill of material by labeling the levels in the product structure. Exhibit 4 shows some levels intended underneath others. This specifies which component belong to which parent.

EXHIBIT 4 – Intended Bill of Material

Level	Item	Quantitiy	units
0------	wheelbarrow	1	each
--1------	box	1	each
--1------	handle assembly	1	each
----2----	bars	2	each
----2----	grips	2	each
--1------	wheel assembly	1	each
----2----	axle	1	each
----2----	bearings	2	each
----2----	wheel	1	each
------3--	tire	1	each
--1------	paint	1	each

Inventory Master File:

The inventory master file contains an extensive amount of information on every item that is produced, ordered or, inventoried in the system. It includes such data as on-hand quantities, on order quantities, lot sizes, safety stock, lead time, and past usage figures. It provides a detailed description of the item, specifies the inventory policy,updates the phyisical inventory count, summarizes thr item's year-to-date or month-to-date usage, and provides internal codes to link this file with other related ,nformation in the MRP database. Exhibit
5 displays the inventory master file of a "board" assembly from a clipboard assembly.

EXHIBIT 5- Inventory Master File

Description		Inventory Policy
ITEM	Board	LEAD TIME	2
ITEM NO	7341	ANNUAL DEMAND	5000
ITEM TYPE	manufacturing	HOLDING COST	1
PRODUCT/SALES CLASS	Ass'y	ORDERING/SETUP COST	50
VALUE CLASS	B	SAFETY STOCK	25
BUYER/PLANNER	RSR	REORER POINT	39
VENDOR/DRWAING	7142	EOQ	316
UNIT PRICE/COST	1,25	MIN ORDER QTY.	100
PEGGING	Y	MAX ORDER QTY.	500
LLC	1	MULTIPLE ORDER QTY	100
		POLICY CODE	3
Physical Inventory		Usage /sales
ON HAND		100	YTD usage /sales	1100
LOCATION		W142	MTD usage /sales	75
ON ORDER		100	YTD usage /sales	1200
ALLOCATED		75	MTD receipts	0
CYCLE		3	Last receipt	8/25
LAST COUNT		09.May	Last issue	10/5
DIFFERENCE		-2

Codes
Cost Acct.	00754
Routing	00326
Engineering	07142

MRP Process

The MRP system is responsible for scheduling the production of all items beneaththe end item level. It reccomends the release of work orders and purchase oerders, and issues rescheduling notices when necessary.the MRP process includes;

Explosion
Netting

Lead time offsetting.

We will explain the MRP proceess in the example part. Now,we only describe the worksheet called the MRP matrix
to record the calculations that are made and make a brief description of the entries taht are required.

EXHIBIT 6 -The MRP Matrix

Item: LLC:	PERIOD
Lot Size: LT:	PD	1	2	3	4	5	6	7	8	9	10
Gross Requirements
Scheduled Receipts
Projected on Hand
Net requirements
Planned Order Receipts
Planned Order Releases

Item:the name or the number of the item being scheduled
LLC:low level code;the lowest level that the item appears in a product structure
Lot size:normally an order will be placed in multiples of this quantity;but it can also represent a minimmum or maximmum order quantity or the type of lot sizing technique.
PD:past-due time bucket. If an order appears in the PD time bucket, the schedule is infeasible and an error message will be generated. Projected on hand entries in the PD column represent beginning inventory.
Gross Requirements: the demand for an item by time period.

For an end item this quantity is obtained from MPS.

For a lower- level item, it is derived from the planned order releases of its parents

Scheduled receipts: the quantity of material that is already ordered and when it is expected to arrive.
Projected on hand:
the expected quantitiy
in inventory at the end of a period that will be available for demand in subsequent perods.
Net requirements:
the net number of items that must be provded and when they are needed.
Planned order receipts: net requirements adjusted for lot sizing
Planned order releases: planned order receipts offset for lead times. It shows when an order should be placed so that items are available when needed.

MRP Outputs

The outputs of MRP process are planned orders from the planned order release row of the MRP matrix. These can represent;

Work orders to be released to the shop floor for in house production
Purchase orders to be sent to outside suppliers
Rescheduling notices or action notices which are issued for items that are no longer needed as soon as planned or for quantities that may have changed.

EXHIBIT 7- Planned Order Report

Item #2740 Date: 9/26/02 On Hand 100 Lead time 2 weeks On order 200 Lot size 200 Allocated 50 Safety stock 50
Date	Order no.	Gross requirements	Scheduled receipts	Projected on hand(50)	Action
				50
9/26	AL 4416	25		25
9/30	AL 4174	25		0
10/01	GR6470	50		-50
10/08	SR 7452		200	150	Exepedite SR10-01
10/10	CO 4471	75		75
10/15	GR 6471	50		25
10/23	GR 6471	25		0
10/27	GR6473	50		-50	Release PO 10-13

EXHIBIT 7- MRP Action Report

Current Date:9/25/02
Item	Date	Order no	Qty.	Action
#2740	10/08	7542	200	expedite SR 10/01
#3616	10/09			move forward PO 10/07
#2412	10/10			move forward PO 10/05
#3427	10/15			move backward PO 10/25
#2516	10/20	2648	100	de-expedite SR 10/30
#2740	10/27		200	release PO 10/13
#3666	10/31		50	release WO 10/24

To expedite an order is to speed it up so it is completed in less than its normal lead time.

The process of moving some jobs bacj-kward(de-expediting) and moving other jobs forward in the schedule (expediting) allows material planner, with the aid of the MRP system, to fine tune the plan.

AN EXAMPLE USING MRP

Ampere Inc., produces a line of electric meters installed in residential buildings by electric utility companies to measure power consumption. Meters used on single-family homes are of two basic types for different voltage and amperage ranges. In addition to complete meters, some parts and subassemblies are sold separately for repair or for changeovers to a different voltage or power load. The problem for the MRP system is to determine a production schedule that would identify each item, the period it is needed, and the appropriate quantities. This schedule is checked for feasibility, and the schedule is modified if necessary.

Demand for the meters and components originate from two sources: regular customers that place firm orders, and unidentified customers that make the normal random demands for these items.

Exhibit-8 shows the future requirements for Meters and B, Subassemblies D and Part E for a six months period stemming from specific customer orders and random sources.

EXHIBIT 8

Month

Meter A

Known Random

1000 250

300 250

700 250

600 250

700 250

Meter B

Known Random

400 60

300 60

500 60

400 60

300 60

700 60

Subassembly D

Known Random

200 70

180 70

250 70

200 70

150 70

160 70

Part E

Known Random

300 80

350 80

300 80

250 80

200 80

Developing a Master Production Schedule

Our schedule will assume that all items are to be available the first week of t he month. This assumption is reasonable since management prefers to produce meters in one single lot each month rather than a number of lots throughout the month.

Exhibit-9 shows the trial master schedule that we use under these conditions, with demands for months 3 and 4 shown as the first week of the month, or as weeks 9 and13. We will work only with these two demand periods.

EXHIBIT 9

	Week
	9 10 11 12 13 14 15 16 17
Meter A	1250 850 550
Meter B	460 360 560
Subassembly D	270 250 320
Part E	380 430 380

Bill of Materials (Product Structure) File

The product structure for Meters A and B is shown in Exhibit-10 in the typical way using low-level coding, in which each item is placed at the lowest level at which it appears in the structure hierarchy. Meters A and B consist of two sub assemblies, C and D, and two parts, E and F. Quantities in parentheses indicate the number of units required per unit of the parent item.

EXHIBIT 10

Exhibit-11 shows an indented parts list for the structure of Meters A and B. The BOM file carries all items without indentation for computational ease, but indented print out clearly show the manner of product assembly.

EXHIBIT 11

Meter A Meter B

A B

D(1) E(1)

E(1) F(2)

F(1) C(1)

E(2) D(1)

C(1) E(1)

D(1 F(1))

E(1) F(2)

F(1)

F(2)

Inventory Records Item (Item Master) File

The inventory records file contains much additional data, such as vendor identity, cost and lead times. For this example, the pertinent data contained in the inventory records file are the on-hand inventory at the start of the program run and the lead times. These data are taken from the inventory records file and shown in Exibit-12.

EXHIBIT 12

On-hand Lead Time

Item Inventory (weeks)

A 50 2

B 60 2

C 40 1

D 30 1

E 30 1

F 40 1

Running the MRP Program

The correct conditions are now set to run the MRP computer program – end item requirements have been established through the master production schedule, the status of inventory and the order lead times are contained in the inventory item master file, and the bill of materials file contains the product structure data. The MRP program now explodes the item requirements according to the BOM file, level by level, in conjunction with the inventory records file. A release date for the net requirements order is offset to an earlier time period to account for the lead time. Orders for parts and subassemblies are added through the inventory file, by passing the master production schedule, which, ordinarily, does not schedule at a low enough level to include spares and repair parts.

Exhibit-13 shows the planned order release date for this particular run. The program logic can best be understood by following the analysis below. (We will confine our analysis to the problem of meeting the gross requirements for 1250 units of Meter A, 460 units of Meter B, 270 units of Subassembly D and 380 units of Part E, all in week 9.)

The 50 units of A on hand result in a net requirement of 1200 units of A. To receive Meter A in week 9, the order must be placed in week 7 to account for the two-week lead time. The same procedure follows for Item B, resulting in a planned 400-unit order released in period 7.

The rational for these steps is that for an item to be released for processing, all its components must be available. The planned order release date for the parent item therefore becomes the same gross requirement period for the subitems.

Referring to Exhibit-3, level 1, one unit of C is required for each A and each B. Therefore, the gross requirements for C in week 7 are 1600 unit (1200 for A and 400 for B) . Taking into account the 40 units on hand and the one-week led time, 1560 units of C must be ordered in week 6.

Level 2 of Exhibit-3 shows that one unit of D is required for each A and each C. The 1200 units of D required for A are gross requirements in week 7, and the 1560 units of D for item C are the gross requirements for week 6. Using the on-hand inventory first and the one-week lead time result in the planned order releases for 1530 units in week 5 and 1200 units in week 6.

EXHIBIT 13

Item	Week
Item	4	5	6	7	8	9	10	11	12	13
A (LT=2) Gross requirements On hand 50 Net requirement Planned-order receipt Planned-order release				1200		1250 50 1200 1200				850
B (LT=2) Gross requirements On hand 60 Net requirement Planned-order receipt Planned-order release				400		460 60 400 400				360
C (LT=1) Gross requirements On hand 40 Net requirement Planned-order receipt Planned-order release			1560	400 1200 40 1560 1560
D (LT=1) Gross requirements On hand 30 Net requirement Planned-order receipt Planned-order release		1530	1560 30 1530 1530 1200	1200 0 1200 1200	270	270 0 270 270				250
E (LT=1) Gross requirements On hand 30 Net requirement Planned-order receipt Planned-order release	1500	1530 30 1500 1500 1200	1200 0 1200 1200 2800	2400 400 0 2800 2800 270	270 0 270 270 380	380 0 380 380				430
F (LT=1) Gross requirements On hand 40 Net requirement Planned-order receipt Planned-order release	1490	1530 40 1490 1490 4320	3120 1200 0 4320 4320 800	800 0 800 800 270	270 0 270 270

Level-3 contains Items A and F. because E and F are each used in several places, Exhibit-7 is presented to identify more clearly the parent item, the number of units required for each parent item, and the week in which it is required. Two units of Item E are used in each Item A. the 1200-unit planned order released for A in period 7 becomes to gross requirement for 2400 units of E in the same period. One unit of E is used in each B, so the planned order released for 400 units of B in period 7 becomes the gross requirement for 400 units of E in week 7. Item E is also used in Item D at the rate of one per unit. The 1530-unit planned order released for D in period 5 becomes to gross requirement for 1530 units of E in period 5 and a 1530-unit planned order release in period 4 after accounting for the 30 unit on hand the one-week lead time. The 1200-unit planned order release for D in period 6 results in gross requirement for 1200 units of E in week 6 and a planned order release for 1200 units in week 5.

Item F used in B, C, and D. The planned order releases for B, C, and D become the gross requirement for F for the same week, except that the planned order release for 400 units of B and 1560 of C become gross requirement for 800 and 3120 units of F, since the usage rate is two per unit.

The independent order for 270 units of subassembly D in week 9 is handled as an input to D's gross requirement for that week. This is then exploded into the derived requirements for 270 units of E and F. The 380-unit requirement for part E to meet an independent repair part demand is fed directly into the gross requirement for Part E.

The independent demands for week 13 have not been exploded as yet.

The bottom line of each item in Exhibit-6 is taken as a proposed loan on the productive system. The final production schedule is developed manually or with the firm's computerized production package. If the schedule is infeasible or the loading unacceptable, the master production schedule is revised and the MRP package is run again with the new master schedule.

EXHIBIT 14

Item

Parent

Number of Units per Parent

Resultant Gross Requirement

Gross Requirement Week

1200

400

1200

1560

2400

400

1530

1200

800

3120

1200

1530

WHERE MRP CAN BE USED?

MRP is being used in a variety of industries, all with a job-shop environment (meaning that a number of products are made in batches using the same productive equipment).The list in Exhibit 15 includes process industries, but note that the processes mentioned are confined to job runs that alternate output product and don't include continuous processes such as petroleum or steel.

MRP doesn't work well in companies that have a low annual number of units produced. Especially for companies producing complex expensive products requiring advanced research and design, experience has shown that lead times tend to be too long and too certain, and the product configuration too complex for MRP to handle. Such companies need the control features that network scheduling (covered previously in Chapter 10).

As you can see in the exhibit, MRP is most valuable to companies
involved in assembly operations and least valuable to those in fabrication.

EXHIBIT 15 Industry Applications and Expected Benefits

Industry Type Examples Expected Benefits

Assemble-to-stock Combines multiple component High

parts into a finished product ,

which is then stocked in inventory

To satisfy customer demand.

Examples: watches, tools, appliences.

Fabricate-to-stock Items are manufactured by machine rather Low

than assembled from parts.These are standart

stock items carried in anticipation of customer

demand.

Examples:piston rings,electrical switches.

Assemble-to-order A final assemble is made from standart options High

which the customer chooses.

Examples:trucks,generators,motors

Fabricate-to-order Items manufactured by machine to customer Low

order.These are generally industrial orders.

Examples:bearings,gears,fasteners.

Manufacture-to-order Items fabricated or assembled completely to High

customer specification

Examples:turbinegenerators,heavy machine

tools.

Process Industries,such as foundries,rubber and plastics. Medium

CAPACITY REQUIREMENTS PLANNING (CRP)

CRP is a computerized system that projects the load from a given material plan onto the capacity of a system and identifies underloads and overloads. It's then up to the MRP planner to level the load-smooth out the resource requirements so that capacity constraints aren't violated. This can be accomplished by shifting requirements, reducing requirements, or temporarily expanding capacity.

There are three major inputs to CRP, as shown in Exhibit 16;

The planned order releases from the MRP process;

A routing file, which specifies which machines are required to complete an order from the MRP plan, in what order the operations are to be conducted, and the length of time each operation should take; and

an open orders file ,which contains information on the status of jobs that have already been released to the shop but have not yet been completed.

With this information, CRP can produce a load profile for each machine or work center in the shop. The load profile compares released orders with work center capacity.

EXHIBIT 16 Capacity Requirements Planning

Capacity, usually expressed as standard machine hours or labor hours, is calculated as follows:

Capacity = (no. machines or workers) * (no. shifts ) * (utilization) * (efficiency)

Utilization refers to the percentage of available working time that a worker actually works or a machine actually runs. Scheduled maintenance, lunch breaks, and setup time are examples of activities that reduce actual working time. Efficiency refers to how well a machine or worker performs compared to a standard output level. Efficiency is also dependent on product mix.

Load is the standard hours of work (or equivalent units of production) assigned to a production facility. After load and capacity have been determined, a load percent can be calculated as

Load percent ₌
^load

_* 100%

Capacity

Centers loaded above 100 percent will not be able to complete the scheduled work without some adjustment in capacity or reduction in load.

MANUFACTURING RESOURCES PLANNING (MRPII)

The MRP systems on the market today are composed of many different modules that can be purchased separately. Typically, the modules include the following:

Forecasting
Customer order entry
Production planning/master production scheduling
Product structure/bill-of-material processor
Inventory control
Material requirements planning
Capacity planning
Shop floor control
Purchasing
Accounting
Financial analysis

We can recognize some of these modules as inputs to or outputs from the basic MRP process. Others represent a broadened scope of MRP-related activities, beginning with forecasting demand and ending with a financial analysis of the firm.

Companies differ their approach to implementing MRP, but seldom will a company purchase an entire MRP system at one time. Most firms install the product structure/bill-of-material (BOM) processor first and then add the inventory module, followed by the MRP module. The BOM and inventory modules have large databases and serve as major inputs to the rest of the process.

Purchasing is also brought online early, usually shortly after the BOM module is installed. Assemble-to-order companies tend to implement the customer entry module as soon as possible.

It may be some time before the master schedule module or higher –level planning modules are added. How, you may wonder, does the MRP system run without a master schedule? Actually, a master production schedule is used, but it's not generated or maintained by the MRP system; it is input by hand.

The capacity planning is important for a well-run MRP system, its absence often separates the successful MRP user from the unsuccessful user.

Shop floor control is a difficult module to implement and is probably the most disappointing one in practice.

As MRP evolved and more modules and features were added in the areas of capacity planning, marketing, and finance, it became clear that the name material requirements planning was no longer adequate to describe the full range of activities this system could coordinate. In keeping with the MRP acronym, the new and improved MRP became known as MRP II, for manufacturing resource planning. Figure 13.8 shows how the various MRP II functions interact. The term closed loop has been used to describe the numerous feedback loops between plans for production or available capacity and between planned and actual occurrences.

Manufacturing resource planning is a misnomer because MRP II software is also used in services, such as education, architecture, health care, distribution, and the like. Thus, systems such as SRP (service requirement planning), DRP (distribution requirements planning), and BRP (business requirements planning), are also available.

EXHIBIT 17 MANUFACTURING RESOURCES PLANNING (MRP II)

24 Nisan, 2009

MATERIAL REQUIREMENTS PLANNING

MRP SYSTEM

Inventory Policy

AN EXAMPLE USING MRP

EXHIBIT 8

Developing a Master Production Schedule

Bill of Materials (Product Structure) File

EXHIBIT 11

Inventory Records Item (Item Master) File

EXHIBIT 12

Running the MRP Program

EXHIBIT 15 Industry Applications and Expected Benefits

Industry Type Examples Expected Benefits

Examples:trucks,generators,motors

Capacity

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